No Recession for a Korean Touchscreen Maker

Demand for Digitech's touch panels is exploding. Samsung Electronics installs them in its camera phones

Few companies in South Korea are better positioned to benefit from the buzz Apple (AAPL) created with its iPhone than Digitech Technology. The largest touchscreen maker in Korea isn't providing its products to Apple, which doesn't sell iPhones in Korea (, 6/13/08). But the growing popularity of touchscreens generated by the booming sales of iPhones and other smart phones has helped Digitech win a contract this year to supply 200,000 3.2-inch touch panels monthly to Samsung Electronics for its "Pixon" camera phones.

Now, Digitech, ranked fourth in BusinessWeek's Asia Hot Growth survey for 2008, is one of a tiny minority of companies predicting robust growth at a time of global recession. That's because demand is just beginning to explode for full touchscreens in the mobile phone market. "Since Digitech is just getting into the handset touchscreen business, 2009 will be a big year for the company despite a slowdown in the industry," says tech analyst Sean Kim at brokerage UBS (UBS).

Indeed, the Samsung contract—the first from a handset maker for Digitech—is changing the nature of the company's bread-and-butter business. In the first nine months of this year, most of Digitech's revenues came from touchscreens for navigation systems, personal media players, and gaming devices. But the company began mass-producing touch panels for handsets in October, and Digitech officials expect more than 60% of its revenues next year to come from handsets.

Big Leap in Profits

The expansion into a much larger business segment has inspired confidence among analysts, with many brokerage houses rating Digitech a buy despite the financial market meltdown. Among them are UBS, Samsung Securities, and Woori Investment & Securities. UBS expects Digitech's operating profit to jump to $20 million next year from $11.4 million this year, while sales will rise to $70 million from $38.6 million. Woori expects a 2009 operating profit of $22.8 million on sales of $80.5 million.

One reason for Digitech's fast growth is its management's willingness to prepare for fresh needs of its clients. As Samsung tries to diversify suppliers from Japan and Taiwan, taking advantage of a weak Korean currency (, 10/8/08), Digitech was the only Korean company building up capability to make ITO (indium-tin-oxide) films, an essential material for making touchscreen panels. It also forged a strategic partnership in June with U.S. touchscreen controller maker Synaptics (SYNA), which wields significant influence in securing new contracts from handset vendors.

Digitech, of course, is not free from challenges ahead. It has yet to win approval from clients on its ITO films, and it needs to diversify its handset clients. "Samsung has had a record of creating its own part business once they see massive volumes. If touchscreen becomes the mainstream in handsets, Samsung could well internalize touchscreen manufacturing," says Park Kyung Min, chief executive of asset manager Hangaram Investment Management. That's a mid- to longer-term task. For now, though, Digitech is all for growth.

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